One of the most complicated parts of the importing process is to accurately cost products. Quotes are usually challenging to decipher, because suppliers differ in the amount of risk that they want to cover, exchange rates fluctuate and there are a lot of hidden costs that need to be taken into consideration.
Not all costs are usually mentioned in a final quote, so it is important to ask the right questions and do in-depth homework before going over to action. Mistakes in your costing calculations can determine whether you have a viable, profitable business or not.
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Add up all the below and you will get an accurate costing price for an imported product:
Most importers forget that a purchase price is often quoted in dollars or another foreign currency. When converting to Rand, it is important to add in a margin to protect oneself against a weakening currency.
You don’t want to be caught off-guard with expenses that you didn’t budget for, just because of unexpected fluctuations in exchange rates.
Ensure that you get the full costs to transport your goods from the production factory to your address. It might sound simple and straight-forward, but international suppliers can either choose to sell goods FOB (Free on Board) or CIF (Cost, Insurance and Freight), and the difference between the two can have a significant effect on your bank balance.
FOB means the seller covers the cost and risk up to loading your goods on the ship or plane. You as importer are therefore responsible for the remaining transport, insurance and clearing costs.
CIF means the seller covers the transport and insurance costs until the cargo is off-loaded at the destination terminal. The buyer is liable for clearing, transport and insurance costs from that point onwards.
In order to ensure your whole length of freight is covered, it is a good idea to let your local freight company speak to the seller’s freight company so that you are not left with any surprises. Be sure to know who is responsible for which costs, and get it in writing if possible.
Insurance for most types of cargo is generally good value for money. Due to the low rate of claims compared to other industries, freight insurance can offer relatively low premiums for high value.
Many buyers decide on insurance based on the value of their cargo but do not realise that, if the cargo ship should sink, they are also liable for a percentage of the cost of the ship based on their percentage of the total cargo.
It may therefore be worth protecting yourself against a mountain of costs that could have been prevented by taking out insurance.
Ensure that you determine the correct duty tax that you will pay before you decide on importing. There is nothing worse than expecting to pay a 10% duty tax and, upon clearing your goods, discovering the duty tax is 30%.
The best way to ensure you have the right duty tax is to get the correct tariff code. Each tariff code is associated with a specific duty tax. A copy of the tariff book is available in the Trade Logistics Members Area. Membership is currently free for a limited period. You can also request the tariff code from your supplier and get a professional opinion on what the tariff code should be.
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You should also not forget to include VAT in your price calculations. VAT is payable when goods are cleared at customs. And the good news is you can claim it back if you are VAT registered.
You can calculate the VAT as follows:
- Product price on commercial invoice (e.g. R100)
- + 10% of commercial invoice (e.g. R10)
- + duty tax (e.g. if duty tax percentage is 20% then R20 is added)
- = Total (e.g. R130). 14% VAT is levied on the Total amount.
The above calculation can be done automatically on our Import Duty and VAT calculator in the Trade Logistics Member’s area.
If you have taken all these factors into consideration you can be confident that you should not have any unpleasant financial surprises and that your import business will be properly set-up, taking all financial risks into consideration and managing it effectively to guarantee ongoing success.
Watch Out For These Trade Nightmares
Take the following safety measures to ensure you do not end up in an unmanageable mess.
When asked, “What do you fear most about importing or exporting goods?”, many things come to mind. But, the two nightmares most first-time importers or exporters dread are damaged cargo and fraudulent suppliers.
The following two nightmares should be on your ‘Watch Out For’ list.
Nightmare 1: Damaged Cargo
There are a few ways cargo can get damaged during shipping. The most common reasons are that either the goods were improperly packed, or the containers got damaged in the transportation process.
Losses from improperly packed containers add up to $5 billion a year worldwide. Traders should ensure that containers are properly packed and that no damaged goods are stored in a container.
Containers aren’t invincible and experience a variety of extreme weather conditions. For this reason, goods need to be packed in such a way that they won’t get damaged in transit. Guidelines on how to pack cargo to survive international shipping is available here.
What do you do when you receive damaged goods?
1. Inspect the container before opening
Check the container and seal numbers against the documents to make sure that the correct container arrived at the destination. Note any damage or seal number discrepancies on the container.
2. Sign and date the note with details of the damage or discrepancy
3. Contact the carrier immediately
Request that a representative is sent to inspect the damage.
4. Notify all parties who handled the container
As well as the marine insurer of the problem and the possibility of a claim. It will be sensible to always apply for cargo insurance.
Very important: Do not open or unload the container before the carrier’s representative arrives.
Nightmare 2: Fraudulent Suppliers
The ease of purchasing goods on the Internet for trade purposes has made finding international suppliers fairly effortless. Unfortunately, with the increase in international sales has come an increase in international scammers targeting uninformed, optimistic buyers.
Some of the most common scams include the disappearance of the seller after payment or substandard goods have been supplied.
The buyer is not, however, totally vulnerable as there are a number of options that he can employ in order to protect himself from being scammed.
1. Research the Seller
Do your homework. Get reviews on the supplier and check whether he has a registered address, company and legitimate contact details.
2. Make use of a reputable business to business trading platform
Most trading platforms have a method for rating sellers and a section where previous buyers provide feedback. Look for established sellers with a reputable rating and a history of successful transactions from happy buyers.
3. Use a payment method that offers buyer protection
Aim to never wire money directly into a seller’s account unless you have an established trust relationship with the seller. Rather choose a more secure payment option.
4. Take control of the freight and use insurance
A common scam is for the seller to send damaged/substandard goods and blame the damage on the shipper. To protect yourself against this scam arrange the freight yourself and use freight insurance.
More detail on how to protect yourself from fraud is given here.
Related: 4 Ways to Source Quality Products for Imports
If you stick to these steps and properly manage the import and export process, keeping your finger on the pulse, things will go according to plan. A seamless and stress-free trade process is possible, if all necessary arrangements are made to avoid falling into any traps.
Freight Quotes: How to Interpret and Compare Them
All freight quotes can be broken down into the following basic sections.
Freight quotes from different companies may be as different in format and content as chalk and cheese. It is normal for the new South African importer / exporter to get freight quotes from a number of companies and compare them.
When doing so it is important to ensure that the freight quotes include all applicable costs. So how do you know that you are comparing apples with apples?
These are the costs that occur in the country of the seller in order to get the cargo from the factory to the international transporter.
Origin charges are dependent on the incoterm stated in the quote. The incoterm ex works includes all costs from the factory until the cargo is loaded on the transport vessel, FCA may only include loading and/or security costs and FOB may not include any costs.
International Transport Charges
This is the cost of the plane, ship, truck or train that will be transporting your cargo between countries. These costs are normally similar, however some freight companies may negotiate better rates with the international transporters than others and some freight companies may add a small mark-up.
Destination Landside Charges
These are all the costs to collect the cargo from the transport vessel and deliver it to the buyer. It may include offloading fees, handover fees, degrouping fees for LCL cargo and storage or inspection fees. These costs are also dependent on the incoterm used, however it is common for the buyer to pay for these costs.
Customs Duty and VAT
For dutiable goods this is often the largest portion of a freight quote. This total is paid directly over to customs and the total should be identical on all freight quotes. If the total is not identical ensure that the freight companies quoting you used the same tariff code for your cargo.
Freight Agent Charges
This is the service fee that a freight company charges. On a freight quote these service fees may be included as an agency fee, a documentation fee, a communication fee, clearing and release fee or a customs documentation fee.
In addition to freight agent service fees the freight company may add a small mark-up to some of the transport charges mentioned above.
Other fees to look out for may be insurance, packing materials or pre-shipment inspection costs. Also check that the freight quotes use the same exchange rate as this could make a significant difference to international costs that are often quoted in dollars.
By going through the above checklist you can be confident that you have all your bases covered and will not be caught by any surprise additional costs before your cargo is delivered.
Although cost is just one factor to look at when selecting a freight company, you can now accurately compare freight quotes to assist you in making an educated decision when making your choice.
4 Ways to Source Quality Products for Imports
Below are four ways to source a good quality product and therefore make it significantly easier to achieve success in trade.
There are many opportunities for South Africans to start and grow their own business by importing unique products that are not available in the country or that cost significantly less than what can be obtained locally.
The success of an import business greatly depends on finding quality products that match or exceed the standards of the South African market. Although these might be easy to identify, it can be complicated to find.
1. Target Trade Shows
Trade shows offer a platform where related products from numerous suppliers are showcased. These trade shows offer many advantages. Not only do potential buyers and sellers come together face to face which helps build trust, but the buyer also gets a good idea of the numerous products available for a specific industry.
Potential buyers will also get exposure to the latest products and trends in the industry and a chance to network with businesses around the globe. It is also common for most sales staff to be English, which gives potential buyers the added advantage of getting accurate information about the features and benefits of a specific product. To search for trade shows you can visit www.biztradeshows.com or http://tradeshow.tradekey.com.
Although trade shows are a good way to source products, there are certain negative aspects that need to be taken into consideration. For instance, the amount of money spent on travel and accommodation (which is usually in another currency), as well as the time spent away from work.
A potential buyer is also not guaranteed that his or her ideal supplier will be present at a particular trade show, which means that a lot of money was spent without achieving any success in the quest of finding the right product to import.
2. Use Business to Business Trading Platforms
The use of online business to business trading platforms has become increasingly popular over the years. Portals such as Alibaba are now commonly known. These web portals showcase products from suppliers all around the globe and have easy search functions to assist potential buyers to get quality products.
They also have systems in place to verify the legitimacy of suppliers and to avoid fraud. Examples of these are http://www.globalsource.com and http://b-2b-marketplace.com. However, potential buyers need to rely on the platform to validate the reliability of the supplier, and it may not always be accurate. It is also difficult to compare suppliers as one only sees what the supplier chooses to reveal online.
3. Contact the Chamber of Commerce in the country
For orders of a significant size a person can contact the chamber of commerce in the country. They usually have a list of reliable suppliers that are big enough to fulfil orders. However, one may get a long list of phone numbers to work through and the language barriers can also be a problem. Furthermore be warned; some chambers of commerce won’t respond if they deem a business to be too small.
Related: Importing Documentation
4. Enlist the help of an International Trade Consultant specialising in sourcing products
Another way to source products is to make use of an international trade consultant that specialises in sourcing products like Trade Logistics. These trade consultants are seasoned in finding quality products, while also evaluating suppliers. Over the years they have built-up contacts with thousands of suppliers. Making use of their services is equivalent to hours spent sourcing an ideal product.
The initial effort and time spent to source a product can ultimately determine the long-term success or failure of an import business and therefore it’s well worth the investment. For more information and tips read through our Trade Logistics guide on how to source and sell products globally.
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